How Much for a Haircut? Illiquidity, Secondary Markets, and the Value of Private Equity

Nicolas P. B. Bollen and Berk A. Sensoy
Additional contact information
Nicolas P. B. Bollen: Vanderbilt University
Berk A. Sensoy: OH State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Limited partners (LPs) of private equity funds commit to invest with significant uncertainty regarding the timing of capital calls and payoffs and extreme restrictions on liquidity. Secondary markets have emerged which alleviate some of the associated cost. This paper develops a subjective valuation model incorporating these institutional features. Private equity values are sensitive to the discount in secondary market transactions, especially for more risk averse LPs. Model-implied breakeven returns generally exceed empirically observed returns. However, highly risk tolerant LPs may find private equity attractive at portfolio allocations observed in practice, especially if they can access above-average funds and an efficient secondary market.

JEL-codes: G11 G12 G23 G24 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-ger
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608549

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2015-08

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().